Money and Money Market

Money, for any country in the world, is a medium of exchange. It can be in the form of paper money, coins, or any type of holdings in a bank account. This medium of exchange is used to pay for goods and services and also to settle debts. It is legally and socially acceptable. Money also sets the standards of value in measuring any kind of relative worth of these goods and services. Money is a standard of deferred payment.

The types of money that are in the market today are the circulating currency and the various forms of financial accounts. Circulating current is and paper money or coin with legal tender status. Simply, it is the cash that is circulated in the economy. The other form of money is the money that sits in bank accounts such as demand deposits, savings account, and certificate deposits. Within the scheme of a modern economy, the currency of that particular economy is usually the smallest component of the money supply.

Money is central to the study of economics and finance. This is because money never holds the same value against another country’s money, and also, money is never the same as the real value of the things you purchase with it. Before any sort of money standard existed, traders were how people received goods and services to live. Even if there is an absence of money in a particular market, barter exchanges are more likely to occur. The use of money is recognized at encouraging trade and division of labour.

In recent years, paper or coin money has become nearly obsolete with the large scale usage of credit and debit cards. Money is often earned and directly deposited into a bank account. The money is then used for purchases with a card or a check. In this way, real “money” never changes hands.

The money market is the global financial market that is used for short-term borrowing and lending. This market provides short-term liquid assets for the global financial system. In finance, the money market only deals with various short-term transactions of assets. The money market is the place in the economy where short-term obligations are bought and sold. Short-term obligations are things such as treasury bills, banker’s acceptances, and commercial papers.

The parties that make up the money market are financial institutions and dealers in money. These dealers are the ones who want to borrow or lend money and credit. The participants in the money market borrow and lend for short periods of time. The period of time can be anywhere up to thirteen months and still be considered short-term. Money market trades are made in short term financial instruments. Financial instruments are often referred to as paper. This market contrasts the capital market because the capital market deals in long-term funding that is supplied by equity and bonds.

The core of the money market is the banks that borrow and lend to each other. They use commercial paper and repurchase agreements to lend and borrow. Finance companies also fund themselves through the money market by issuing large amounts of asset-backed commercial paper to themselves which is secured by the pledge of eligible assets. Eligible assets include auto loans, mortgage loans, mortgage backed securities and credit card receivable, among others. Most large corporations issue commercial paper on their own credit.

Other common money markets are certificates of deposit, treasury bills, money markets, mutual funds, municipal notes and a federal agency of short term securities. A money market manager is a trained professional who specializes in the short term transactions and natures of money market accounts.

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